Question

Zippy is earning ​$30 comma 000 per year working for​ joe's car repair. he also has savings of ​$150 comma 000​, on which he is earning​ 10% annual interest. he decides to leave​ joe's car repair to invest his savings in starting his own car repair business. in the first​ year, zippy's speedy car repair earns revenues of ​$200 comma 000 and has explicit costs of ​$75 comma 000. ​zippy's economic profit​ (or loss) in the first year is ​$ nothing. ​(round your answer to the nearest​ dollar.)

Answer 1

Zippy's economic profit is $80,000.

Economic Profit = Revenues - (Explicit Cost + Implicit Cost)

Implicit cost or opportunity cost refers to the loss an individual incurs from an alternative decision, as a result of making a decision.

In this question, Zippy's implicit costs are the $30,000 from his job at Joe's car repair.

Additionally, he loses the 10% interest he would have earned on his savings of $150,000 had he not started his business.

So Zippy's implicit cost is $45,000 ($30,000 + $15,000)